As businesses in the United Arab Emirates (UAE) navigate the complexities of the Corporate Tax Law, understanding the deductions allowed can significantly impact their tax liability. The UAE’s tax legislation provides several deductions that businesses can claim to minimize their taxable income. In this blog, we will explore the deductions allowed under the UAE Corporate Tax Law and discuss how TallyPrime, a leading accounting software, can assist businesses in accurately calculating deductions, maximizing savings, and ensuring compliance.

If a taxable person complies with the standards outlined in the corporate tax law by the Authority, he may be allowed to deduct some of his revenue during a tax period.

The amount which you can subtract from the taxable income when determining the tax liability is – Deduction. As a result, the taxable person owes the government less tax money. Keep in mind that tax deductions are a type of legal incentive that the law has made available. Article 28 of the UAE Corporate Law discusses deductible expenses.

Limitation on general interest deductions

Article 30 of the UAE corporate tax legislation specifies the general interest deduction limits for company tax deductions. A taxable person may deduct up to 30% of their earnings before EBITDA to qualify for the general interest deduction. The amount of this deduction will be treated as net interest expense.

You can compute the net interest expense by deducting the interest expense for the tax period from the taxable interest income received by the taxable person. The taxable interest income should also consist of the amount of net interest expense that has been carried over from a previous period.

Deductions Allowed under UAE Corporate Tax Law

Exemption from the deduction for related parties

Any of the following must be true for a taxable person to be ineligible for an interest expense deduction if they have taken a loan from a related party.

• if the associated party receives any profits or dividends.
• if the associated party receives a capital contribution.
• If the linked party will redeem the shares, make a share capital return, repurchase them, or reduce capital after receiving the shares from the taxable person.
• If a related party—someone from whom an acquisition will occur—purchases the ownership stake from that person.

According to corporate tax legislation, if the taxable person engages in any of the aforementioned activities but can demonstrate that he wasn’t doing it to benefit from a corporate tax advantage, he may be eligible for interest expense deductions. Additionally, it won’t qualify for the corporate tax benefit under the statute if it falls under a foreign jurisdiction at a rate of 9%.

Entertainment expenditure-Corporate Tax

All in all, the cost of entertaining a taxable person’s clients, suppliers, etc. is included in the entertainment expense. It also includes costs for things like travel, food, lodging, amenities, equipment, entrance fees, and anything else the Minister designates as an entertainment expense.

The highest amount from which entertainment expenses may be subtracted

A taxable person may deduct up to 50% of their entertainment expenses during a tax period. The person may deduct it as amusement, entertainment, or leisure during the relevant tax period. This has also been mentioned in Article 28 of the UAE corporate tax legislation, which discusses the subtleties of deductible expenses.

Non-deductible expenditure-Corporate Tax

Moreover, according to UAE corporate tax legislation, non-deductible expenses are those for which gov won’t permit deductions from a taxable person’s income. Article 33 of the UAE corporation tax code outlined transactions that are not deductible expenses. For a taxable person, the following transactions are not eligible for any kind of deductions.

• UAE corporate tax law imposes a corporate tax on a taxable person.
• Businesses getting gifts are not qualified to function as a qualifying public benefit entity.
  • Other than those paid for contract violations, fines and penalties fall under the category of nondeductible expenses.
• Contributions are given to a business that isn’t a member of the eligible public benefit corporation.
• Whatever amount that a natural person receives following Clause 3 of Article 11 of the UAE Corporate Tax Law. It includes the Unincorporated Partnership that came from a firm.
• Bribes and illicit payments of any kind are non-deductible expenses.
• An individual’s worldwide income evaluating a Tax is subject to taxation.
• Businesses getting Grants are not Qualifying Public Benefit Entity.
• Non-deductible expenses include dividends and other payments made to the owner of the taxable person.
• The taxable person has already paid the input value-added tax and is qualified for reimbursement.
• Non-deductible expenses include any payments connected to compensating the owner, such as profit distributions.
• Any expenditure that the Minister has recommended but that does not fall within one of the mentioned categories.

How TallyPrime Helps with Deduction Calculations-Corporate Tax

Overall, TallyPrime simplifies the deduction calculation process, ensuring accuracy and compliance with the UAE Corporate Tax Law. Here’s how TallyPrime can help:

a. Automated Expense Tracking:

TallyPrime’s advanced features enable businesses to track expenses effortlessly. The software allows for the categorization of expenses, making it easier to identify eligible deductions.

b. Customizable Chart of Accounts:

TallyPrime allows businesses to create a customized chart of accounts that aligns with the UAE Corporate Tax Law. It ensures the accurate recording of expenses and facilitates deduction calculations.

c. Streamlined Depreciation and Amortization:Corporate Tax

TallyPrime automates the calculation of depreciation and amortization, simplifying the process and ensuring compliance with the relevant tax regulations. The software also generates detailed reports for these deductions, making it easier for businesses to substantiate their claims during tax audits.

d. Real-time Financial Reporting:

Additionally, TallyPrime generates comprehensive financial reports, including profit and loss statements and balance sheets, which provide an overview of business operations. These reports assist businesses in assessing their deductions accurately and making informed decisions regarding tax planning.

e. Integration with Payroll Management:

TallyPrime’s integration with payroll management features allows businesses to accurately calculate deductions related to employee benefits. The software automatically calculates the amounts for pension contributions, medical insurance, and other benefits, ensuring compliance and reducing manual errors.

Ensuring Compliance and Audit Trail

TallyPrime ensures compliance with the UAE Corporate Tax Law by maintaining an audit trail that tracks every change made to financial data. This feature enhances transparency, accountability, and accuracy in financial reporting. It ultimately reduces the risk of non-compliance.

The software also facilitates easy access to financial records, allowing businesses to retrieve necessary documents and substantiate their deduction claims during tax audits. TallyPrime’s robust data security measures ensure the confidentiality and integrity of financial information.

The Bottom Line

Understanding the deductions allowed under the UAE Corporate Tax Law is crucial for businesses seeking to optimize their tax savings.

Emerald will help you to be compliant with Tax Laws and customize your accounting software that meets all your business needs.